making confident day trading decisions

Can you make a persuasive argument for your trades?

A good portion of my mentoring is assessing whether or not a trader is improving at making good decisions. You would think that the first thing I would look at is a traders P&L. I can understand why someone may expect that to be my top priority but as a veteran trader I can tell you that P&L alone does not always tell the story.

This article was inspired by two incidents that occurred this week. One particular day last week was a very busy trading day. If you know anything about myself and Erik we will be the first ones to tell anyone within shouting distance if it is a tough day to trade or if volume is very light to do nothing or at the very least cut down your share size.

Well on this day it was a very good day to trade. We had a trader who was new to the office listening to me throughout the morning telling everyone to get busy. It was one of those days to “belly up to the bar” and get involved. It was a morning to make some good money. After lunch Erik called him into the back and told him you can’t be passive on a day like today, you have to sit on the edge of your seat and trade like you expect to make money.

What was his response? He sent an email after the close telling us he wanted to trade from home. Why would he do this, we were mentoring him and promising to help him improve? Believe it or not this is not the first time we have experienced this. He didn’t want anyone to critique his trading. Now mind you this is NOT an experienced trader who is earning a consistent living and he is trading OUR money. His first day trading from home I reviewed his trades for the day and his decisions were horrible.

I emailed him and asked him to send me his journal for the day so I can se what his thought process was for the days trades. It is 10 days later and I still have not heard from him. He can’t back up his decisions. He can’t make an argument. If you aren’t willing to learn, you will never improve.

The other situation happens when I bring new traders into the back room for small group mentoring. We mentor everyone on the trading floor and online but a trader can make themselves dissappear by being quiet. When I bring them into “the SHED” I force them to talk me through all of their possible trades they want to make.

When you are in The Shed, there is nowhere to hide. You must make a case to me like you are on trial. I force you to get good at making good decisions. It amazes me how often Erik and I hear “I was hoping, I don’t know why, I wasn’t paying attention to that, I didn’t see that support.”

Picture in your mind the next day you are trading. Visualize yourself in a room full of 100 traders. Now picture that you are required call out every trade you are considering to the whole room for judgement. How many of your current decisions would you call out proudly and loudly!?

Use this visualization technique to improve your decision making ability and I will guarantee your P&L will become very consistent.

Take my advice, don’t hide behind your monitor and try to figure it out on your own…..ask a question!

Pete

Newsletter Volume 1 Issue 4

   Keystone Trading Group Newsletter  

Volume 1 Issue 4

Short Term Stock Trading Education 

In this issue:

·         Identifying Significant Reference Points

·         Order Entry Techniques

  Identifying Significant Reference Points 

When trading stock for a living, you obviously want to know what you are going to do next in a given price action scenario. The key to maximizing profits and minimizing risk lies in being able to anticipate where other traders are probably going to take action.

Using charts in your day trading, your objective is to locate areas where you believe traders will initiate a position or exit a position. Once you have identified those areas, you MUST begin to form if-then scenarios about how other stock traders will react if the expectations they had about the trade are met, or just as important, if they are not met.

What I mean by this is simple, while you are trading, you should always be prepared for any scenario, meaning what needs to happen for me to initiate a trade or exit a trade. Most traders are looking at the same intra day information, once you understand fully what you will do under any circumstance, you will have a much better idea how the majority will react.

If you are in an uptrend and get long, what does price action and volume need to look like in order for you to no longer to want to be in the trade any more? Now here is something I hear very often from traders who are disciplined, “I am getting stop loss to death. I am correct on most of my trades and make no money.”

How do you solve this dilemma? The first technique is asking yourself two simple but very important questions. Did the circumstances for my trade scenario change or is this move just noise? How do you know the difference? The answer is simple, pay attention to the tape, the volume printing in time and sales. Did significant volume hit the tape that would tell you large traders have an urgency to buy or sell shares? Or did price move without many shares trading hands? If price moved but few shares traded, your original idea is still probably valid! Stick with the trade.

     

The second method to earning “what you should” when your call on the trade scenario is correct is utilizing time tested order entry techniques.

 Order Entry Techniques 

Understanding how to manage share size is crucial to your success as a trader. Money management is how much capital you will allocate to a particular trade; risk management is how you will manage that capital. Risk scenarios will include stop los parameters and share size allocated to the trade based on stop loss points and risk per trade as defined by money management.

Too many traders make the mistake of trading the same share size all the time, regardless of conditions or risk points. I often hear “My share lot is 1,000 shares per trade.” Wow this is a huge mistake. To be a consistent stock trader you need a predefined plan for how you will acquire the shares for a trade. Simply put, if you want to get to 1,000 shares for a trade scenario, how are you going to get them?

We recommend two strategies. One is building a position in a strong trend the second is entering a small portion of your intended total position and adding to it only when the position has moved in your favor.

In order to build a position you must have confidence in the strength of the trend. If your goal for example is to have 1,000 shares of a stock, you would buy the 1,000 shares in pieces as the stock pulls back or pauses in the trend. You may do it in two or three pieces, for example 400, 300, 300 for a 1,000 share total for the position.

I can hear what you are thinking, why is he telling me to average down? Averaging down means you wanted 1,000 shares, got 1,000 shares, the trade moves against you and you go get another 1,000 shares. That is like marrying the same woman you got divorced from, getting more of what is not working. To build a position like this you will need to identify a window where you would expect the pullback to stop, we teach in our Equity Trader 101 course to use the 20SMA as the area we anticipate the pull back to stop. Stop loss will be based on the full size position.

              

The second method is price confirmation. Using this method you will enter one third to half of your total position. When and only when the position moves in your favor you will add to it. Using this method it is common to scratch a few trades, take a few small losses and small profits until you finally feel comfortable that you have a good head start on the trade in your intended direction.

Obviously re entry is a big part of this method. Think carefully about what this method is allowing you to you to do, you are wrong on the fewest shares and correct on the most shares. It is terrific money and risk management. It will prevent you from being in a position where you will need to be perfect on your entry, you will gain valuable information based on how “easy” or difficult it was to get filled.

If you would like some help with any of the topics covered in this newsletter, please feel free to send me an email and we can work on it together. prenzulli@keystonetradinggroup.com

If you are trading remote and not taking advantage of the leverage and competitive fee structure available from Keystone Trading Group, please send an email to info@keystonetradinggroup.comto inquire about rates or extra intra day buying power. Please be sure to put in the headline the subject for the email so that it can be directed to the proper department.

Once again thank you for deciding to receive our educational newsletter on your path to becoming a complete trader.

http://keystonetradinggroup.com/ 

  

Newsletter: Stock Trading tips

Welcome to the Keystone Trading Group Newsletter: Volume 1: Issue #3

Tips & lessons for day trading success

In this issue:

·        How a professional stock trader uses charts to generate ideas

·        Choosing a trading style before you write a trading plan

Using charts like a pro

To many new stock traders, learning how to read charts can be an exciting starting point into the maze of making money from day trading stocks. There certainly is no shortage of books and websites that will teach the many methods of reading charts.

Along with the methods there are a few styles of charts you can display: bar, candlestick, line, point and figure. The amount of information on charting can be overwhelming, if you pull up even the most basic charting package today you will see it has a minimum of 50-100 indicators available. For the new stock trader it will be an amazing journey into the process of learning how to use all the fancy tools.

Every year my partners and I attend the trade shows related to trading, in addition to hosting many workshops in our NYC office. It always amazes us how many people “speak” trading and charting fluently but have no idea how to make money.

They know all the buzzwords like Fibonacci and Elliot Wave, regression analysis and exponential this and that. The problem most of these potential traders have is they think that charts give the answers. Charts don’t give answers, they give ideas.

Charts are not crystal balls that if A+B+C happen then you will make money. The multitude of indicators that is available are all derivatives of price. Meaning they tell you what price did. Do you really need something to tell you what price did if you are watching price already? How many watches do you need to tell what time it is?

I see far too many traders load up their trading screen with five indicators on the same chart. They get three indicators telling them one thing, the other two telling them something else and then they can’t make a decisive decision because they aren’t sure which signal is the one to focus on.

At its most basic level, charts display trader sentiment and commitments. Think about it, charts are formed from actual trades. Charts tell you where other traders took a stand and what they believe about future market direction. New highs and lows are formed from these opinions. When many traders have the same opinion, you get a trend. When there is consensus, you get a trading range.

The next time you look at a chart, keep it simple. Ask yourself the only two things you need to know to make a good decision:

1.      Are we trending or in a consolidation?

2.      Once you have clear answer to question #1, now ask yourself question #2: Is there an opportunity to make money in front of me based on the current price action.

In other words: Is there a good idea here? Has the uptrend paused and given me a spot to get in? If so how do I measure risk? Where did the buyers step up to the plate?

Is there a support I can buy or resistance I can short? If it breaks that area, can I manage my risk? On the trading floor of our NYC office, when new traders mentor with us, we ask them to come up with good ideas. The better your ideas, the more money you will make. Keep analysis simple. You don’t want to think when you are trading, or try to figure anything out. You simply want to trade. Say your ideas out loud and see if they make sense. Tell yourself the idea as if you were trying to raise capital for the trade.

I am buying a test of a previous low is a good idea. I am getting short “because it is too high” is not a good idea. Use charts to get good ideas based on current price action; do not use charts to predict. Don’t get caught up into thinking you need to get fancy to make money.

Trading Styles

One of the biggest misconceptions about trading is believing you can trade every market condition consistently. Traders who make money specialize. To take it one step further, they specialize in a style of trading that suits their personality. You only need one technique or signal to make a living; you don’t need all of them.

Trading styles: which describes you?

If you want to keep your losses close to the vest and small, this means your profits will also be small. Your trades would normally have a 1-1 risk reward ratio, you will make many trades intra day. You would be a scalper / momentum trader. If you would prefer not to make many small trades but would rather have a longer term intra day focus, you are a position trader.

Scalping: Main focus is small losses and small profits, get ideas from reading the tape. Position trader: Focus is longer term, from one hour to one month. Get your ideas from price charts.

Which style of trading best matches your personality to run your trading business? If you choose a style that you are not comfortable with, you will be fighting the trading signals all day.

Spend some time reviewing your trading day. Do you like to make many quick decisions or do you like to put the pieces of the whole market puzzle together before you make a trade.

I can tell you from experience, if you try to implement both trading styles, you will master none. You will mix styles in the middle of a trade. Be definite as to your style and your “ideas” will be much more decisive. J

Until next time, have a great trading week.

Professional traders maximize intra day leverage, if you are not trading with at least 10-1 leverage: send us an e mail to learn how.

info@keystonetradinggroup.com in the subject line put “extra leverage”

(212) 594-8900

Volume 1 issue #2

Keystone Trading Newsletter Volume 1: Issue #2 

• What does it mean to be a disciplined trader?
• Tape reading.

Ø      What does it mean to be a disciplined trader?

In virtually every trading book or course, there is at some point talk about the need to be a disciplined trader. Of course there is the most basic and popular definition of “execute your stop losses when price gets to your number.”

I have a slightly more detailed version that I feel every active short term stock trader should know.

Trading Discipline:

·        To exit a trade immediately when your stop loss is reached. To exit a trade when your profit target is reached

·        To not trade when market conditions do not match your style, to trade actively when market conditions meet your criteria.

·        To always manage risk appropriately for the particular stock you are trading. One share size does not fit all.

·        To review your performance every day some time after the close.

I am sure everyone reading this is well schooled in taking a loss when you are supposed to. It is not however widely talked about how important it is to book a profit, when its time has come. If you are a scalper you must book profits on your entire position into momentum, there is no last second decision to scale out, get out and go to the next trade. If you are an intra day position trader and the trend is obvious, scale out and maximize the remainder of the trade. You shouldn’t be afraid of a temporary pullback and get out of your entire position because of noise.

One of the first considerations you should make before you write your trading plan is deciding what style of trader you want to be. This is important because you will then be able to fill out your plan with scenarios to enter and exit your stocks based on your style. It is very hard to make money in all market conditions. What conditions suit your style? What does the stock action need to look like for your method?

Once you have a clear answer, you should only trade actively when conditions match your method.

 I have seen more position traders get chopped up in a market that is in consolidation, and scalpers lose their shirt when a trend has formed. Position traders keep trying to guess when the trend will start and scalpers, who make most of their money through sniper like attacks of the markets ebb and flow, get hammered when the market picks a direction.

Discipline means waiting for the market to present the conditions that suit your plan, don’t try to force your plan on the market.

I once watched a very successful and long time trader complaining he was getting horrible fills for about a week. After listening to this for what seemed like an eternity because of the way he was carrying on, I decided to watch his trades.

He was normally a short term scalper who traded very liquid stocks. He decided he would trade faster moving stocks that were less liquid because there was a new trader in the room who was trading that style. After about 3 seconds of watching him trade it was obvious he was not trading in a disciplined manner. He was trading the same size blocks in the new stocks that he was trading in his old style.

There was no possible way he was going to get the same fills. The stock was too thin to warrant the size he was trading. It was trading 100 -400 share lots consistently in time and sales (quoting the same size as well) and he was trading 5,000 share blocks. To make a long story short, he lacked the disciple to adjust his old share size to the new stocks.

To be a discipline trader you must never just trade one size fits all for every stock. Stop loss parameters and liquidity vary from stock to stock.

Keep a trading Journal. You must have a method help yourself improve. Professional athletes have coaches, you should too. Your journal is your coach. Having the discipline to write entries every day after the close and reading your entries daily to monitor progress is the only for the average trader to improve. If you don’t keep a journal you will be depriving yourself of the most valuable class you will ever pay for, your own experience.

Ø      Tape Reading

Tape reading is a method of forecasting the next immediate move in your stock

  n      A method of forecasting, from what is taking place now, to anticipate what is likely to happen  in the future.

n      The essence of tape reading is interpreting the action of the volume (the prints), combined with bids and offers.

n      Are they “marking up” or “marking down” their inventory? (bid/offer quotes) Securities are similar to inventory in a department store. Is it flying off the shelf or is it being offered at a discount?

n      How urgent are the participants? How do we see this? From the size and consistency of the prints.

One of the most common opinions our instructors hear during our Equity Trader 101 course is this:

“I don’t need to learn to read the tape, I trade off charts.” Well my trader friend, how are the charts formed? That’s right, from the trades (prints)

Let’s say your stock is trading at new highs, but all the prints are on the bid, and for size. Do you think you should look to tighten up a trailing stop on a good position or should you keep your eyes closed and wait till the stock breaks down on the chart and you give back half your profits?

One more example, let’s say you are short and your stock has a fast move against you. The stock normally trades 2,000- 4,000 share prints on the tape. During this bounce against you, I notice the only prints that went off were of the 100-300 variety. I stay in the trade and you bail out. What did I see? The circumstances did not change. The tape told me nobody stepped up to the plate and did any buying of significance. 

Next time you are at your screen, give the tape a little more “eye time.” Watch for significant prints that actually move the stock, not every trade.

Pay attention to where they are happening. Are the significant prints occurring at the end of a move or out of a breakout? These are all necessary observations to become a good tape reader and a better trader.

Until next time, have a great week trading.

Professional traders maximize intra day leverage, if you are not trading with 10-1 leverage; send us an e mail to learn how.

info@keystonetradinggroup.com in the subject line put “extra leverage”

Newsletter 4.23.07

Welcome to the Keystone Trading Newsletter 4.23.07

In this issue:

• Trading to make money vs. being right
• Stop loss orders: more than just taking a loss
• How to properly use moving averages
• How to choose which stocks to trad

         Ø      Trading to make money vs. trading to be right.

One of the most common problems new traders’ face is truly understanding the fact that losses are a part of the business. Trades that don’t make money are as inevitable as needing air to breath. Here is the key that new traders fail to grasp:

A losing trade isn’t necessarily a bad trade. Trades entered based on a well thought out and written trading plan are good trades, no matter the outcome. Often we ask traders on our trading floor “Would you make the same trade again?” after they exit a trade that was not profitable. If the answer comes back yes we know the trader is on the right track.

A trader who can answer yes to this question is trading to make money. They understand this is just one trade of maybe hundreds they will make this month. A trader who has attained this important mindset will move effortlessly from one trade to the next. Ask yourself if that is how you react from trade to trade.

The trader who gets frustrated and yells at the screen or pounds a keyboard is trading with his ego. He is trading to prove his brilliant analysis correct.

The easiest way to monitor if you are trading to be right: pay attention to how flawlessly you exit a losing trade. If you hesitate at all, you have some mental work to do.

Another important question to ask yourself while in a trade: “If I did not have this position, would I want it?” If the first answer comes back NO, and you don’t get out of the trade, you are trading from your ego.

A trader’s maxim: Assess probabilities, put the trade on, let the trade unfold, do what you planned to do. 

Ø      Stop loss orders: more than just taking a loss

If I had to put a percentage on the time spent on entry signals vs. time spent on exit techniques, I would say its 90-10 entry signals.  Learning how to manage a position properly will ultimately be the reason you take home a check every month. Your ultimate goal is to “make what you should” on your trades. Obviously its not possible to get out at the extreme of a move on a consistent basis, but there are some techniques you should use to maximize profits and minimize losses.

Before we discuss specific stop loss techniques we should cover the proper trader psychology for this topic.

•         The stop loss must be a dollar amount you accept before you place the trade. This small distinction will be a huge shift in your thinking about a trade. Once you have “accepted” the risk, this will ensure flawless execution. If a trade moves against you, it will be easy to exit because you have already accepted the dollar amount risk and were comfortable with taking the loss on that amount.

• Initial Stop Loss: Risk point as defined by your original entry.
• Break Even Stop Loss: When a position moves in your favor, you move the stop loss point from the original spot to your break even area.
• Trailing Stop Loss (profit taking): Used to protect significant profits on a winning position. Objective is to lock in some profits.
• The buy stop limit and sell stop limit, important orders to learn.

          Typically used in place of market orders.

         Intention is to take advantage of liquidity and get price improvement.

•   Helps get filled in “fast” market conditions, but cannot get a worse fill (as with a market order)than the limit price entered.
• A sell stop limit is an order to sell below the current bid to buy.
• A buy stop limit is an order to buy placed above the current best offer to sell.

       

Ø      How to properly use moving averages

Let’s keep things simple, we are here to make money. It is very easy to get sucked into the myriad of fancy indicators and over use them. The original use of moving averages by floor traders was not very complex.

There are 20 trading days in an average month. “Is today’s price action above or below the average?” Based on the answer to the question, floor traders would have a bias to the long or short side. It was very simple how it was used; it was not a magic tool.

The last thing you want to be doing when you are trading is thinking too hard, you want to be listening to what the market is telling you.  Proper use of moving averages in today’s technologically advanced market is to us them as a filter.

Here is the best and most profitable way of using them:

1. As a trend filter. Use it a method quickly identifying a bias; should I be long or short. Use it to filter out the noise so that you are not placing too much emphasis on every blip and print. We recommend using a 20 period simple moving average
2. Use it to determine strength of trend. If the 20sma is sideways, there is no bias, don’t trade you are guessing. If it has a nice upward or downwards slope, you should be trading aggressively in that direction.
3. Use a second moving average to determine momentum. We teach to use a 5sma to determine the momentum on all time frames we monitor. The method a great tool to help hold good trades. If momentum remains above the trend, stick with the trade until you see exhaustion in the move or when the momentum crosses the trend. There are more techniques we teach in the Equity Trader 101 course but you get the idea. Use moving averages as a filter, not as magic points.

Ø      How to choose which stocks to trade

The objective in short term trading is to make a consistent living. Far too many traders decide to trade stocks that are too illiquid or too volatile to manage risk. An illiquid stock is one that does not have sufficient bids and offers to get out of a trade easily where you want to. If you were to place a sell order and it would knock the stock down .10, it is not liquid. The trading of stocks that are volatile sounds exciting, and would appear to provide the most profit potential. On the surface this sounds great, but remember why you decided to become a professional trader, to pay your bills every month, trading maximum volatility everyday is a quick way to the poor house.

Money making stocks should have two characteristics if they are to be a part of your daily business: liquid enough to manage risk and active enough to provide money making opportunities.

We recommend you pick one of two groups of stocks:

1. A basket of non correlated stock that you trade every day
2. A sector or industry that you learn like the back of our hand. You can find a breakdown of sectors and industries here to get ideas.

If you would like to learn about trading a Keystone Trading Group corporate account, or would like to take a Keystone Trading Concepts class, please fill out this form

If there any topics you would like to see in future newsletters, please let us know. info@keystonetradinggroup.com

Have a great and profitable week.